U.S. home prices rose in May to the highest level on record, reflecting a worsening inventory shortage has squeezed would-be homebuyers.
Median home prices climbed 0.7% in May from a month earlier, mortgage analytics firm Black Knight said in a recent report. Home prices are now 0.1% above where they were one year ago.
"There is no doubt that the housing market has reignited from a home price perspective," said Andy Walden, Black Knight’s vice president of enterprise research. "Firming prices have now fully erased the pullback we tracked through the last half of 2022
The Federal Reserve's aggressive interest-rate hike campaign sent mortgage rates soaring above 7% for the first time in nearly two decades, cooling the red-hot housing market. But even though rates have been slow to retreat, home prices are once again on the upswing as buyers adjust to the new rates.
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Rates on the popular 30-year fixed mortgage are currently hovering around 6.81%, according to Freddie Mac, well above the 5.3% rate recorded one year ago and the pre-pandemic average of 3.9%.
Even though rates are nearly double what they were three years ago, home prices have hardly budged.
That is largely due to a lack of available homes for sale.
Sellers who locked in a low mortgage rate before the pandemic began have been reluctant to sell, leaving few options for eager would-be buyers.
A recent report from Realtor.com showed that the number of available homes on the market in June was down more than 47% from the typical amount before the COVID-19 pandemic began in early 2020.
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"Mortgage rates have hovered in the 6 [percent] to 7 percent range for over six months and, despite affordability headwinds, homebuyers have adjusted and driven new home sales to its highest level in more than a year," Freddie Mac chief economist Sam Khater said recently.
Across the country, housing inventory levels have tumbled in 95% of major markets. The biggest swings took place in Western states including Phoenix, Arizona; Boise, Idaho; Ogden, Utah; Colorado Springs and San Francisco.
More than half of the nation's 50 largest housing markets, which are concentrated primarily in the Midwest and Northeast, returned to their prior home price peaks — or set new highs — as of May, according to Black Knight.
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"The same lever used to reduce demand — that is, raising rates — has not only made housing unaffordable almost universally across major markets, it has also resulted in significant supply shortages by discouraging potential sellers unwilling to list in such an environment, further strengthening prices," Walden said.
He added: "At this point, even if rates come down, but not so sharply as to entice potential sellers out of their sub-3.5% mortgages, it could risk a widespread reheating of home prices across the U.S."
